Abstract

This paper examines the association between corporate international diversification and tax avoidance in Korean evidence. Prior papers suggest that corporate international diversification is mixed result with the firm value as well as accrual earnings management. Prior research has documented that there can be mixed result with positive(＋)(Agency conflict hypotheses) or negative(－)(earnings volatility hypotheses) association between corporate international diversification and accrual earnings management. However recent studies suggest that tax avoidance decrease earnings quality and complementary with manager's diversion behavior (Balakrishnan et al. 2010；Kang 2012). However there is no research has been done regarding the corporate international diversification and the tax avoidance in Korea. Using Korean firm－year observations between 2002 to 2010, corporate international diversification is negatively associated with the tax avoidance. This empirical analysis shows that complex international tax law can make manager hardly use specific tax avoidance. Also corporate international diversification firms more focusing on financial income which can be important determinant to lower cost of equity or debt financing. So they are focusing on financial income than tax income on the process of international diversification. As far as I know, there can be limited study has been done on these issues so this paper can be the first empirical paper which can shed some lights on related accounting and tax literatures. I expect that this study help investors to understand that the association between corporate international diversification and tax avoidance.

Keywords

• Corporate International Diversification
• Tax Avoidance

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